Overview
Construction bonds cover the obligations a builder takes on across a project's life: bid bonds that back a submitted bid, performance bonds that guarantee completion, payment bonds that protect the trades and suppliers, and maintenance or warranty bonds that stand behind the finished work for a set period. Owners and general contractors require them to move the risk of a contractor walking off or going insolvent onto a surety.
Surety underwriting for construction is a review of character, capacity, and capital. The surety looks at credit, the depth of the management team, current backlog, and the financial statements that show whether the company can carry the work. Contractors who keep clean books and finish jobs on time build the bonding capacity that lets them bid larger work.
A construction bond is a three-party agreement among the contractor (the principal), the owner (the obligee), and the surety. If the surety pays a claim, the contractor reimburses it, so the bond is a credit instrument, not a substitute for the contractor's own insurance.
Who needs this bond
Construction firms of every size, from owner-operators bidding their first municipal job to ENR-ranked GCs running multi-state programs.
Typical amount and term
Bid bonds usually 5 to 10 percent of bid amount, performance and payment bonds at 100 percent of contract value. Maintenance bonds typically 1 to 2 year tail.
What this bond costs
Your premium is a small percentage of the bond amount, set by underwriting. The biggest drivers:
- Contract value and the size of the bonded obligation
- Personal and business credit of the owners
- Working capital and the quality of the financial statements
- Backlog and the contractor's single-job and aggregate capacity
- Project type, duration, and complexity
| Scenario | Bond amount | Estimated premium |
|---|---|---|
| Residential remodeler, solid credit | $50,000 project | around 1.5 to 3 percent of the bonded amount |
| Commercial GC, audited statements | $500,000 project | around 1 to 2 percent of the bonded amount |
| Bid bond on a public solicitation | 5 to 10 percent of the bid | often issued at no separate charge inside a program |
Figures are illustrative premium ranges, not quotes or statutory amounts. Your rate depends on the bond amount your obligee requires and your underwriting profile.
What you will need
- Three years of business financial statements
- Owner personal financial statements and resumes
- Continuity plan and named project manager
- Subcontractor and supplier reference list
How to apply
- Pre-qualify your program with a single underwriting package
- Get a bond capacity line from the carrier (single and aggregate)
- Issue bid bonds on demand inside your approved capacity
- Convert to performance and payment bonds at award
How a surety bond differs from insurance
Builder's risk and general liability insurance pay your own losses on a project. A construction surety bond instead guarantees your performance to the owner: if you default, the surety makes the owner whole and then recovers from you. Carrying both is normal, because they cover different risks.
Frequently asked questions
What is the difference between a bid, performance, and payment bond?
A bid bond backs your bid and the promise to enter the contract if selected. A performance bond guarantees you finish the work. A payment bond guarantees your subcontractors and suppliers get paid.
How is the premium calculated?
Premium is a percentage of the bonded amount, usually low single digits for well-qualified contractors. Rate depends on credit, financial strength, and the size of the job.
Can a new contractor get bonded?
Yes. Smaller projects can often be bonded on the owners' credit and a personal financial statement. As you complete work and grow working capital, your capacity rises.
What raises my bonding capacity?
Strong working capital, clean and current financial statements, retained earnings, and a record of completed projects of similar size all expand the single-job and aggregate limits a surety will extend.
Does a bond replace my insurance?
No. A bond guarantees your performance to the owner; insurance covers your own losses. Most projects require both.
More contract bonds
Reviewed by the Cornerstone Surety bond team. Last reviewed 2026-06-17.